Runaas Resources Public Relations

 Hedging has become somewhat of a dirty word lately. People have correlated it with Hedge Funds and “betting against America”. In reality hedging, like many things (i.e. alcohol), can be abused or used incorrectly and cause harm. But when hedging is used correctly, it can be a useful tool or in some cases a prudent necessity. A homeowner will usually hedge the chance of a fire destroying his home by purchasing fire insurance. Hedges can also improve the safety and reduce risk in an investment portfolio. Hedging is a portfolio strategy of diversification to reduce risk by owning something that is correlated inversely to other assets in the investment portfolio. Owning precious metals, including gold and silver mining stocks, is a hedge. The primary purpose of owning these investments is because they do well during times of rising inflation or economic and political turmoil. These are the times other asset classes like stocks, bonds or real estate may not do well. Therefore it is prudent to hedge a portfolio by owning some investments related to precious metals. It is important to constantly monitor economic and political risks to achieve the optimum asset allocation in precious metals. The Arbor Asset Allocation Model Portfolio (AAAMP) has a long term target of 5% of the portfolio in precious metals related investments, but that percentage could be much higher at certain times. A recent popular vehicle for investing, Exchange Traded Funds(ETF’s), has made it easy to invest in an instrument that moves inversely, or the opposite direction of a stock market index. Some of these EFT’s even move 2 or 3 times as much as the underlying index. This allows an investor to take the market risk partially or wholly out of one’s stock portfolio. For example, let’s say you own $100,000 of 20 great companies with solid balance sheets and high dividends, but believed strongly the stock market was going to decrease in value. You may not want to sell your stocks so you buy $50,000 of an EFT that moves 2X the inverse of the market. You now have removed all the market risk from your portfolio of stocks. If the market moves lower as you believed, you will make money on the ETF to make up for losses in your stocks. Of course, if you are wrong and the market moves higher, you will lose money on the ETF that will offset the gains in your stocks. Either way, you continue receiving the dividends and do not incur taxes and commissions selling and buying your 20 stocks. Hedging is an important and useful diversification strategy to reduce investment risk and improve long term portfolio performance. It is also a strategy that requires monitoring and careful application. Properly used, hedging can reduce investment risk. The Arbor Asset Allocation Model Portfolio (AAAMP) uses precious metals investments and inverse index ETF’s to maintain asset allocations at levels believed to be optimum for the current investment environment. We use hedging to reduce portfolio risk. We continually update the AAAMP with every trade or major market move in order to stay disciplined and focused on our asset allocation.  (www.arborinvestmentplanner.com)